P.L. 1999, CHAPTER 415, approved January 18, 2000 Senate, No. 2231

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1 P.L., CHAPTER, approved January, 000 Senate, No AN ACT concerning contributions to the Public Employees' Retirement System of New Jersey and amending P.L., c.. BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:. Section of P.L., c. (C.:A-) is amended to read as follows:. The contingent reserve fund shall be the fund in which shall be credited contributions made by the State and other employers. a. Upon the basis of the tables recommended by the actuary which the board adopts and regular interest, the actuary shall compute annually, beginning as of March,, the amount of contribution which shall be the normal cost as computed under the projected unit credit method attributable to service rendered under the retirement system for the year beginning on July immediately succeeding the date of the computation. This shall be known as the "normal contribution." b. With respect to employers other than the State, upon the basis of the tables recommended by the actuary which the board adopts and regular interest, the actuary shall compute the amount of the accrued liability of the retirement system as of March, under the projected unit credit method, excluding the liability for pension adjustment benefits for active employees funded pursuant to section of P.L.0, c. (C.:A-.), which is not already covered by the assets of the retirement system, valued in accordance with the asset valuation method established in this section. Using the total amount of this unfunded accrued liability, the actuary shall compute the initial amount of contribution which, if the contribution is increased at a specific rate and paid annually for a specific period of time, will amortize this liability. The State Treasurer shall determine, upon the advice of the Director of the Division of Pensions and Benefits, the board of trustees and the actuary, the rate of increase for the contribution and the time period for full funding of this liability, which shall not exceed 0 years on initial application of this section as amended by this act, P.L., c.. This shall be known as the "accrued liability contribution." Any increase or decrease in the unfunded accrued liability as a result of actuarial losses or gains for the valuation years following valuation year shall serve to increase or decrease, respectively, the unfunded accrued liability contribution. Thereafter, any increase or decrease in the unfunded EXPLANATION - Matter enclosed in bold-faced brackets >thus@ in the above bill is not enacted and is intended to be omitted in the law. Matter underlined thus is new matter.

2 S accrued liability as a result of actuarial losses or gains for subsequent valuation years shall serve to increase or decrease, respectively, the amortization period for the unfunded accrued liability, unless an increase in the amortization period will cause it to exceed 0 years. If an increase in the amortization period as a result of actuarial losses for a valuation year would exceed 0 years, the accrued liability contribution shall be computed for the valuation year in the same manner provided for the computation of the initial accrued liability contribution under this section. With respect to the State, upon the basis of the tables recommended by the actuary which the commission adopts and regular interest, the actuary shall annually determine if there is an amount of the accrued liability of the retirement system, computed under the projected unit credit method, which is not already covered by the assets of the retirement system, valued in accordance with the asset valuation method established in this section. This shall be known as the "unfunded accrued liability." If there was no unfunded accrued liability for the valuation period immediately preceding the current valuation period, the actuary, using the total amount of this unfunded accrued liability, shall compute the initial amount of contribution which, if the contribution is increased at a specific rate and paid annually for a specific period of time, will amortize this liability. The State Treasurer shall determine, upon the advice of the Director of the Division of Pensions and Benefits, the commission and the actuary, the rate of increase for the contribution and the time period for full funding of this liability, which shall not exceed 0 years. This shall be known as the "accrued liability contribution." Thereafter, any increase or decrease in the unfunded accrued liability as a result of actuarial losses or gains for subsequent valuation years shall serve to increase or decrease, respectively, the amortization period for the unfunded accrued liability, unless an increase in the amortization period will cause it to exceed 0 years. If an increase in the amortization period as a result of actuarial losses for a valuation year would exceed 0 years, the accrued liability contribution shall be computed for the valuation year in the same manner provided for the computation of the initial accrued liability contribution under this section. The State may pay all or any portion of its unfunded accrued liability under the retirement system from any source of funds legally available for the purpose. including, without limitation, the proceeds of bonds authorized by law for this purpose. The value of the assets to be used in the computation of the contributions provided for under this section for valuation periods shall be the value of the assets for the preceding valuation period increased by the regular interest rate, plus the net cash flow for the valuation period (the difference between the benefits and expenses paid by the system and the contributions to the system) increased by

3 S one half of the regular interest rate, plus 0% of the difference between this expected value and the full market value of the assets as of the end of the valuation period. This shall be known as the "valuation assets." Notwithstanding the first sentence of this paragraph, the valuation assets for the valuation period ending March, shall be the full market value of the assets as of that date and, with respect to the valuation assets allocated to the State, shall include the proceeds from the bonds issued pursuant to the Pension Bond Financing Act of, P.L., c. (C.:B-. et seq.), paid to the system by the New Jersey Economic Development Authority to fund the unfunded accrued liability of the system. "Excess valuation assets" for a valuation period means, with respect to the valuation assets allocated to the State: () the valuation assets allocated to the State; less () the actuarial accrued liability of the State for basic benefits and pension adjustment benefits under the retirement system; less () the contributory group insurance premium fund, created by section of P.L., c. (C.:A-), as amended by section of P.L.0, c.; less () the post retirement medical premium fund, created pursuant to section of P.L.0, c. (C.:A-.), as amended by section of P.L., c.; less () the present value of the projected total normal cost for pension adjustment benefits in excess of the projected total phased-in normal cost for pension adjustment benefits for the State authorized by section of P.L.0, c. (C.:A-.) over the full phase-in period, determined in the manner prescribed for the determination and amortization of the unfunded accrued liability of the system, if the sum of the foregoing items is greater than zero. "Excess valuation assets" for a valuation period means, with respect to the valuation assets allocated to other employers: () the valuation assets allocated to the other employers; less () the actuarial accrued liability of the other employers for basic benefits and pension adjustment benefits under the retirement system, excluding the unfunded accrued liability for early retirement incentive benefits pursuant to P.L., c., P.L., c.0, P.L., c., and P.L., c., for employers other than the State; less () the contributory group insurance premium fund, created by section of P.L., c. (C.:A-), as amended by section of P.L.0, c.; less () the present value of the projected total normal cost for pension adjustment benefits in excess of the projected total phased-in normal cost for pension adjustment benefits for the other employers authorized by section of P.L.0, c. (C.:A-.) over the full phase-in period, determined in the manner prescribed for the determination and amortization of the unfunded accrued liability of the

4 S system, if the sum of the foregoing items is greater than zero. If there are excess valuation assets allocated to the State or to the other employers for the valuation period ending March,, the normal contributions payable by the State or by the other employers for the valuation periods ending March, and March, which have not yet been paid to the retirement system shall be reduced to the extent possible by the excess valuation assets allocated to the State or to the other employers, respectively, provided that with respect to the excess valuation assets allocated to the State, the General Fund balances that would have been paid to the retirement system except for this provision shall first be allocated as State aid to public schools to the extent that additional sums are required to comply with the May, decision of the New Jersey Supreme Court in Abbott v. Burke. If there are excess valuation assets allocated to the State or to the other employers for a valuation period ending after March,, the State Treasurer may reduce the normal contribution payable by the State or by the other employers for the next valuation period as follows: () for valuation periods ending March, through March, 00, to the extent possible by up to 0% of the excess valuation assets allocated to the State or to the other employers, respectively; () for the valuation period ending March, 00, to the extent possible by up to % of the excess valuation assets allocated to the State or to the other employers, respectively; () for the valuation period ending March, 00, to the extent possible by up to % of the excess valuation assets allocated to the State or to the other employers, respectively; and () for valuation periods ending on or after March, 00, to the extent possible by up to 0% of the excess valuation assets allocated to the State or to the other employers, respectively. For calendar years and, the rate of contribution of members of the retirement system under section of P.L., c. (C.:A-) shall be reduced by / of % from excess valuation assets and for calendar years 000 and 00, the rate of contribution shall be reduced by % from excess valuation assets. Thereafter, the rate of contribution of members of the retirement system under that section for a calendar year shall be reduced equally with normal contributions to the extent possible, but not by more than >/ of %@ %, from excess valuation assets if the State Treasurer determines that excess valuation assets shall be used to reduce normal contributions by the State and local employers for the fiscal year beginning immediately prior to the calendar year, or for the calendar year for local employers whose fiscal year is the calendar year, and excess valuation assets above the amount necessary to fund the reduction for that calendar year in the member contribution rate plus an equal reduction in the

5 S normal contribution shall be available for the further reduction of normal contributions, subject to the limitations prescribed by this subsection. c. The retirement system shall certify annually the aggregate amount payable to the contingent reserve fund in the ensuing year, which amount shall be equal to the sum of the amounts described in this section. The State shall pay into the contingent reserve fund during the ensuing year the amount so determined. The death benefits, payable as a result of contribution by the State under the provisions of this chapter upon the death of an active or retired member, shall be paid from the contingent reserve fund. d. The disbursements for benefits not covered by reserves in the system on account of veterans shall be met by direct contributions of the State and other employers. (cf: P.L., c., s.). This act shall take effect immediately. STATEMENT This bill provides for a reduction in the contribution rate required of State and local government employees who are members of the Public Employees' Retirement System (PERS) equal to % of compensation for calendar years 000 and 00, and for a contribution rate reduction of up to % of compensation in future calendar years if the State Treasurer determines that excess valuation assets will be used to reduce the normal contributions made to the system by the State and local employers in a fiscal year beginning immediately prior to a calendar year. Current law provided a reduction in the PERS contribution rate required of State and local government employees equal to / of % of compensation for calendar years and, and provides a reduction of up to / of % of compensation in future calendar years if the State Treasurer determines that excess valuation assets will be be used to reduce normal State and local employer contributions to the system in a fiscal year beginning immediately prior to a calendar year. Reduces PERS employee contribution rate by % for calendar years 000 and 00 and under certain circumstances thereafter.